x Abu Dhabi, UAESaturday 20 January 2018

Poland interest rates cut over recession risk

What's Down: Poland cut borrowing costs to spur growth amid fears the country may face its first recession in two decades.

Poland's central bank yesterday cut borrowing costs for a second month to spur growth in the European Union's biggest eastern economy, which faces the risk of its first recession in two decades.

The only central bank in the 27-nation EU to raise rates this year lowered the benchmark seven-day reference rate 25 basis points to 4.25 per cent yesterday, in line with the forecasts of 33 of 35 economists surveyed by Bloomberg.

The Narodowy Bank Polski last month cut the rate for the first time since 2009 and its governor Marek Belka announced the start of an easing cycle, adding he saw no risk of a recession.

Since then, inflation slowed below the upper end of the bank's tolerance range for the first time in almost two years and economic growth slowed to the weakest in 13 quarters, prompting analysts to predict a contraction.

"This is a partial disappointment because of weak economic growth in the third quarter," said Dariusz Winek, the chief economist at Bank Gospodarki Zywnosciowej. "We still think a steep fall in the inflation rate in the next few months will trigger further monetary easing."

Inflation slowed to 3.4 per cent in October from 3.8 per cent a month earlier and will "record a remarkable decline in November", said Jaroslaw Janecki, a Warsaw-based economist at Société Générale, who forecasts the rate at 2.8 per cent.

Poland's central bank predicts consumer price growth will decelerate to the 2.5 per cent target next year, when the economy will expand 1.5 per cent, the least since 2002.

Economic growth in the third quarter weakened on a second-straight decline in domestic demand, including a 0.1 per cent increase in consumer spending, the lowest since the first quarter nine years ago as companies offered no new jobs for the past three months and inflation outpaced growth of wages.

"Consumers hit a wall," said Marcin Mazurek at BRE Bank. "In the fourth quarter, we'll be able to refute the alleged impossibility of negative consumption growth in Poland."